Banks in Malaysia performed well in 2019 as fintech disruptions are reshaping the industry and external disadvantages, as well as the uncertainty brought about Brexit and trade disputes among China and the USA. Outside causes do not only decelerated worldwide requests but also triggered fear of a recession and protectionism, affecting business confidence and ultimately affecting loan demand?

Rupeika-Apoga et al. (2018) found that despite these challenges, Malaysian banks have demonstrated reasonable takings and resource trait, with enough wealth shields to withstand likely pressures, despite falling profit borders and loan drawdowns.

Allawala, Allawala& Saadiq (2018) stated that there are around 12 investment banks, 16 Islamic banks, 25 commercial banks, and one global Islamic bank working in Malaysia. The growth rate of loans and revenue of these banks shown a remarkable number rise and helping the country`s economy. An expert from MIDF Amanah Investment Bank said that industry earning is raised to 3.5 this year as it has a slow down since 2018. We are also amazed to see the loan growth has also increased by 3% to 4%, which was less than 2% last year.


Ahamed & Mallick (2019) emphasized that said modest credit from industries has steered to lower-than-expected credit advance in the year, while mortgages and retail sales have remained stable, weakening overall performance. “Companies must either delay the release of approved loans or decide to repay existing loans due to economic uncertainty”. The revenue growth with the best performance of banks are AmBank Bhd, CIMB Bank Bhd, RHB Bank Bhd but the performance of Public Bank Bhd did not perform well in the market.

He said that relatively speaking, Islamic banks continue to outpace traditional banks, with double-digit growth in revenue this year. Also witnessed FinTech’s roots in traditional banking, including CIMB International, Hong Leong Bank, Affin Bank, and AMMB Holdings, and Technology Company Grab said they are interested in obtaining virtual banking licenses in the country.

Lipton & Pentland (2018) found that CIMB Group established an electronic bank in February in Philippines recently. Besides, around 50 non-banks can issue electronic money in Malaysia, of which four-quarters provide solutions for mobile pay, accounting for 86.6% of the sector’s deals. “Boost”, “GrabPay”, “Touchn Go (TnG)”were significant in Malaysia as e-wallets. The few names are “Lazada” wallets, “Samsung Pay”, “PayPal” TnG is 55% retained by “CIMB Group Holdings Bhd”.

Kerényi&Müller (2019) realized that in terms of monetary policy, the “National Bank of Malaysia (BNM)” reduced the overnight policy rate (OPR) from 27root points in May to 3% and cut the statutory reserve requirement (SRR) from 3.5% to 3.0 in November % to maintain the monetary policy. Sufficient liquidity in the financial system. The industry’s liquidity is still abundant, with an average liquidity coverage rate of 150% this year and payments more or less outpaced loan growth. He said that meeting the requirements of the Net Stable Fund Ratio (NFSR) stipulated by the State Bank is also a key factor for banks to accumulate deposits this year.

Wu & Duan (2019) stated that the bank’s choice of assets to buy will help stabilize asset quality and thus support the bank’s Lower credit costs. Given accommodative interest rates, household/retailer credit demand has been maintained amid weak corporate demand. Despite the more nervous capital market activity, another contributing factor to revenue is the elasticity of fee income. Fee-based elastic revenue comes from enhanced funding deedsby banks so they cut OPR capital in April.

Frost et al. (2019) pointed out that given that the normalization of interest net brim occurred intwo or three quarters, the OPR reduction of the State Bank had no significant impact. In 2020, the consumer sector will continue to support loan growth and the entire bank. He said that although the OPR may be further reduced in the first quarter of next year, it will not have a significant impact on bank earnings in 2020. The insurance industry remains stable.

Gnan &Masciandaro (2018) found that the takaful business’s insurance business income in 2019 remains relatively stable. An analyst with MIDF said that the acumenamount of domestic takafulis rising gradually. As of the first half of 2009, the takaful rate has risen from 9.3% in 2009 to 15.5% double-digit growth. He said Syarikat Takaful Malaysia Bhd continues to be the best performing company, with its saturation increasing by 30% to 35% and net profit rising by approximately 40%.

Hamza & Jedidia (2020) said the same could be seen in the general business area of ​​takaful, which performs better than the traditional business due to the low bottom, even local intake, and climbingcustomer knowledge. The growth of the business of Takaful in Malaysia is superior in typical insurance, adding that the market is also partly targeted by BN’s goal to increase the proportion of Islamic financial structure drive.

“Total, the insurance of life sector did well than the insurance sector in 2019 as general, as the latter is in a phased opening of auto and fire tariffs. Customs liberalization began past year, but other insurancesthat were scheduled to yield upshot is happens this year has been deferred to next year, leaving certain room for businesses participants. In the general insurance sector, due to low penetration and increased claims, the industry declined in the first half of 2019 (the first half of 2019), a year-on-year decrease of 1.4%.

Phan, Narayan, Rahman & Hutabarat (2019) realized that the General Insurance Association of Malaysia said the industry faces a double blow, namely low penetration, and rising claims. Malaysia’s overall insurance dispersionratio has lasted to stagnate between 54% and 55% over the past five years. However, he remains optimistic about the outlook amid solidlocal request, with the growth comes from takaful of family and life insurance.

It is expect people who are non-policy owners can take advantage of the renewal and the 3,000 tax deductions in takaful.

With prudent underwriting, he is also optimistic about the general insurance sector. He continues to focus on a growing portfolio of gainful products of insurance, such as partnerships, retail, and medium-sized trades in non-automotive businesses. The sector may further consolidate in 2020, and if the government redoubles its efforts to implement the regulation, all foreign insurance companies are expected to meet Malaysia’s 30% ownership requirements.

Mester (2019) stated that the intensified competition caused by the phase-out of debt in the general insurance industry might also lead to possible mergers and acquisitions between public insurance companies.

Tech ambitions in Malaysia

As a developing country in Southeast Asia with a population of over 30 million, Malaysia has experienced quite a few turbulent years. After the previous prime minister was involved in an international corruption scandal, Mahathir, 92, was unexpectedly re-elected as the country’s leader and promised to advance several essential reforms.

Nguyen (2016) found that Around 1 trillion ringgit of Malaysia with some domestic obligations encourage people to donate funds to these banks. There are many crow funding activities made by these banks in Malaysia.

Therefore, the way of Fintech paves its roads in Malaysia. Fintech helps the country to fight corruption and enhance the economy. The political leaders of the country started to realize the importance of technology and recognized the critical role in the country`s progress. The blockchain can also improve the economy of the country if taken into consideration by authorities.

Ozili (2018) realized that according to the definition of the Journal of Innovation Management, “‘fintech’ is a new type of financial industry that uses technology to improve economic activities.”

Fintech companies include start-ups and traditional financial companies, all of which are trying to trade or improve the services of existing fiscal institutions, and the popularity of smartphones has boosted the industry’s growth.

Mavrakana&Psillaki (2019) found that in addition to startups, traditional financial institutions have also joined this industry revolution.Many banks have established their fintech innovation projects, seeking new ideas for success, and then changing the way people manage money.

Malaysia’s early incubator and investment company 1337 Ventures produced a map of Malaysia’s fintech ecosystem covering different market segments. From this picture, most of the country’s fintech companies are focusingon the field of payments and loans.

Nabilou (2019) stated that considering Malaysia’s demographic edifice more than half are Muslims, Islamic finance (financial transactions by Islamic regulations) also occupies an essential position in the country, with extensiveadvance ability.

Many articles point out that Malaysia’s fintech development is very uneven. Some segments of the market are left unattended, while others are a red sea. The company also recently launched a pre-incubation crash course specifically for the financial technology sector. The session lasts for four weeks and is a lecture by a senior local bank.

Borroni & Rossi (2019) found that in the field of e-wallets, KrASIA just stated on the e-wallet app launched by gaming company Razer and Malaysian giant Berjaya Corporation Berhad. At present, the deal has settled in more than 6,000 retail point offline. Although in Malaysia, the e-wallet field is already a market segment with many players, and there are even Chinese players-Alipay and WeChat Pay, Razer’s entry has caused waves. At the same time, Southeast Asia’s online ride-hailing platform Grab also entered the payment field last year, launched Grab Pay in Singapore, and grew its business to Malaysia in June this year.

Hartmann& Smets (2018) stated that price comparison sites are also popular in Malaysia, with significant players like“GoBear”and “iMoney” in Singapore. Both platforms provide users with identification and price comparison services for insurance and credit card financial products. Started in 2012, iMoney stated in ameeting in 2017 that although its business has covered entire Southeast Asia, more than half of the company’s revenue still comes from Malaysia.

Hakenes&Schliephake (2019) noted that they have a first-mover advantage in Malaysia for two years, so we have been growing. But in markets such as the Philippines and Indonesia, we are more or less in the stage of improving ourselves and covering so many areas,” said Lee Ching, CEO of iMoney Wei said.

1337 Ventures also lists those segments that are still the blue ocean today, including credit ratings, real estate websites, and capital market transactions.

The regulation of the Malaysian fintech industry is mainly related to financing and equity crowd funding.



Literature review

Cooperation or demise: what banks should do today, large banks are working with fintech companies in a type of styles. They want to shrink enduringcosts and defend their market share by providing clients with novel products in banking. But all failed. To work with fintech companies and truly realize value transformation, banks need to have a clear sympathy of the advance model, in addition to scope and licensing issues of the bank’s modernism, locating and retained technology purposes.

Nabilou (2019) stated that given the enormous variances in size and culture between banks, they also need to determine how best to work with Fintech companies. We believe that banks can unlock the full potential of fintech within their organizations in four steps. Banks have many groundbreaking concepts; the trail is to determine the right ideas from them and embed them in technology. The complexity, size, and isolation of banks themselves mean that it is often challenging to address this challenge effectively.

Develop a fintech framework that rewards innovation

Borroni& Rossi (2019) found that for banks, many innovation opportunities not only address structural cost challenges but also enable banks to achieve longer-term benefits. On the other hand, working evaluation and return series are frequently shorter. Therefore, when the economic environment is uncertain, it is understandable that people are concerned about agreeing on the surplus hazards of these prices of investment. Banks need to settle this internal issue. This means that banks requirements with clear plans in the context of fintech strategies.

Hartmann& Smets (2018) stated that process execution must be top-down while encouraging innovation and incorporating lessons learned. To support development, a framework for adopting innovation must be identified, with clear accountability, decision-making framework, and success criteria. Employees should be encouraged to come up with new ideas and innovative suggestions through internal social media. Also, the “hackathon” (note: technical creativity exchange activities involving corporate IT engineers) also provides a window for encouraging employees to propose and express concepts. We endorse that banks clarify the basis and processes of their intentions, and then segment related information with companies. Which like to share, causes of internal and external influences, end on processes and tolerance gages, and the drivers that support the innovation context.

Selecting the innovative business model to meet business needs

Hakenes&Schliephake (2019) noted that although there are many innovative business models currently in use, banks usually adopt one of the following three few types: central, not central, or mix of both. For the central model, the main novelty executive directs the focal advance unit to grow commercial answers. This prototype can identify not only specific innovation needs and provide new ideas and concepts for the organization, but also better coordinate work with the main tools executive and linkages with obtaining activities and supplier management and risk interests. However, one might think that the main innovation unit is far away from the corporate unit to know its wants fully. If the central pattern toils fine, Fintech companies can assist from the funding and architecture they provide. If the operation is not proper, the organization may face a longer decision-making cycle, and it will take more time to find the business initiator.

Kim, Park & Song (2016) found that the non-central classic is more common in local banks. Every unit of business controls its management process so that departments familiar with the business can catch real problems faster and find innovative institutions that can provide effective solutions. The disadvantages are duplication of work, the creation of social procedures, and a dearth of regularity. Although fintech companies work closely with many banks can work more quickly with business sponsors, it is challenging to link new ideas to business needs deprived the care and guidance of a chief unit. We like to say that, mix model is the best solution so far.

Campiglio et al. (2018) realized that we believe that a clear novelty units aids banks set the tenor and communicate the right point. At the same time, banks need clear leadership to defend innovation. We praise, however, that the void among purely innovative institutions and commercial teams wishes be as close as workable. Therefore, consider it necessary to ensure the transparency of the end-to-end innovation adoption process. The parties involved in acquiring bank innovation projects currently have little understanding of end course everything, so the confusion faced by fintech companies can be imagined.

Mavrakana&Psillaki (2019) researched that our research shows that when banks seek assistance from fintech companies to drive innovation, their preferred interaction strategy is a collaboration. Through cooperation, banks can work together to develop new technical standards for future adoption. We also pointed out in the analysis that in terms of internal product development, big banks in the region of Asia-Pacific. They are fixated than banks in the many different areas, especially in the field of digital payment. They use banks to provide services to customers who have insufficient banking services.

Junejo, Shah & Bachani (2019) noted that banks in North America tend to invest in new product development, and many large US banks choose to invest in fintech startups. European banks usually take a stable method, and they may be extra to incorporate M & A into fintech strategies. Generally, just a few of the 54 banks globally surveyed conducted extensive cooperation with fintech companies through collaboration, development of independent fintech products, investment in innovative companies, or acquisition of innovative companies.

Chol, Nthambi & Kamau (2019) found that banks have initiated or participated in numerous incubators, accelerators and programs for training to gain early entrée to tools and flair without having to rely too much on fintech companies. For fintech companies, such arrangements make it easy to get the capitals, funding,data, and social breaks they need to trail their products or services prototypes. The way to integrate with FinTech companies is not unique. However, while banks want to rely on fintech companies to drive innovation, it is often difficult for them to successfully implement new and innovative technologies, regardless of the type of integration they choose.

Zhao (2018) stated that the sooner the whole bank accepts creative ideas, the faster it will achieve sustainable change. Banks should wisely value many integration copies and select a hybrid model that can support their novelty standards and lasting development plans.

Malaysia is becoming a promising fintech market in Southeast Asia.

Kephart et al. (2018) stated that as a developing country in Southeast Asia with a population of more than 30 million, Malaysia have experienced quite a few turbulent years. After the previous prime minister was involved in an international corruption scandal, Mahathir, 92, was unexpectedly re-elected as the country’s leader and promised to advance several significant reforms.

Natarajan, Krause & Gradstein (2017) realized that when analyze the data for the years 2013 to 2017 we see how they are really very significant. In terms of investment in fintech startups in the Malaysia, $6.7 billion was raised compared to $ 4.4 billion in the rest of Europe. In terms of employment at the end of 2017, the UK already employed more than 60,000 people in this sector, more than in Singapore, Hong Kong and Australia combined, generating more than £ 6.6 billion last year. In Spain, we barely exceed a thousand employees.
Safarzyńska & van den Bergh (2017) found that focusing on the main risk that I mentioned at the beginning of this article: minimizing regulatory risk. To this end, in 2013 they began to work within a legislative and supervisory framework that would allow them to create bodies adapted to the new business models developed by fintech companies.

Nyborg (2016) realized that Fintech companies include start-ups and traditional financial companies, all of which are trying to replace or improve the services of existing financial institutions, and the popularity of smartphones has boosted the industry’s growth.

Rahman (2018) found that in addition to startups, traditional financial institutions have also joined this industry revolution: many banks have established their fintech innovation projects, seeking new ideas for success, and then changing the way people manage money.

Kopp, Kaffenberger&Jenkinson (2017) researched that Malaysia’s early incubator and investment company 1337 Ventures produced a map of Malaysia’s fintech ecosystem covering different market segments. From this picture, most of the country’s fintech companies are put in the field of payments and loans.

Tsai & Kuan-Jung (2017) realized that considering Malaysia’s demographic structure-more than half are Muslims, Islamic finance (financial transactions following Islamic regulations) also occupies an essential position in the country, with considerable growth potential.

Rupeika-Apoga et al. (2018) found that the increase in Fintech newcomers in the sector does not have to provoke panic attacks on banks due to the challenges posed by the radical transformation of all their technological infrastructure in order to compete. The perpetual popularity of “us against them” debate does not provide an accurate picture of the relationship between Fintech innovators and banks. Let us make it clear, banks are the cornerstone on which our economies rest, they are the ways in which most Fintech companies operate, and they will not disappear in the near, even distant future.

Ahamed & Mallick (2019) emphasized that creating an essentially different way of seeing and focusing on the sector. Technology startups look at this landscape of financial services and, using the rationality of the internet, see poor customer service as a margin to introduce huge efficiencies. This logic has been applied to other sectors, such as music and telecommunications, which have also been transformed by new technologies and the internet. What a traditional bank can see as a threat in the digital age, its competitors can interpret as an opportunity.

Wu & Duan (2019) stated that many researchers also lists those segments that are still the blue ocean today, including credit ratings, real estate websites, and capital market transactions.

Regulatory environment

Frost et al. (2019) noted that the regulation of the Malaysian fintech industry is mainly related to financing and equity crowdfunding.

Gnan &Masciandaro (2018) found that Bank Negara Malaysia, which is also the country’s central bank, first released the fintech governing sandbox framework in 2016, which aims to create a friendly development setting for fintech and promote the advancement of Malaysia’s financial industry.

Hamza & Jedidia (2020) found that according to a 2016 report by Ernst & Young that explores fintech compliance and the regulatory environment, generally speaking, the role of the regulatory sandbox is to relax or even exempt existing private regulatory entities on a pilot basis.

Phan, Narayan, Rahman & Hutabarat (2019) realized that companies incorporated into the framework which have an advantage when it comes to personal and corporate customers. Of course, not all companies can become pilot units. The conditions to be met include, but are not limited to:

  • There are products, services or solutions that can genuinely be called innovations that can increase the convenience, competence, safety factor and value of services for finance.

Mester (2019) stated that prove that the company has adequately and correctly assessed the effectiveness, functionality, and associated risks of the product, service, or solution

  • Have the resources needed to conduct sandbox testing to mitigate and control the risks and losses associated with the products, services, and solutions provided by the company
  • Have a realistic business plan to commercialize their products, services or solutions in Malaysia after exiting the sandbox framework

Nguyen (2016) found that participating in the regulatory sandbox project can help companies acquire customers who would want to give money to a company that has not been approved or recognized by the regulator?” Adrian Yap, CEO of Money Match, a fintech startup in Malaysia, said in an interview. Money Match was approved by the National Bank of Malaysia in mid-2017 and is one of four companies that have incorporate in the regulatory sandbox framework to date.

Ozili (2018) realized that the fields of remittance and currency exchange have also open. And some big players in the market have also started to look for cooperation with us. It is beneficial to join the sandbox.”

Mavrakana&Psillaki (2019) found that the National Bank of Malaysia has also established a FinTech Empowerment Organization, whose website shows that the organization is “mainly responsible for formulating.They also help improving regulatory strategies to increase the penetration of innovative technologies in Malaysia’s financial services industry.

Nabilou (2019) stated that in 2015, Malaysia issued regulations regulating equity crowd funding activities, becoming the first country in Southeast Asia to promulgate relevant laws. Equity crowd funding refers to private companies selling part of their shares to investors.

Borroni& Rossi (2019) found that according to a 2016 Invest Smart equity crowd funding report (Invest Smart is a project under the Malaysian Securities Commission’s Investor Protection Initiative), new regulations issued in 2015 include:

  • The number of investors investing in a single company must not exceed 5,000 Malaysian ringgits (8381.5 Yuan)
  • Investors enjoy a 6-day cooling-off period during which all investments can be withdraw by investor
  • The total amount of investors participating in equity crowd funding within 12 months must not exceed 50,000 ringgits (83815 Yuan)

Hartmann & Smets (2018) stated that the result is a wave of Fintech companies seeking to optimize particular segments of the financial value chain (be it in international transfers, loans or the payment process) and offering their specialized services to other companies and banks via API. A company that wanted to support musicians could, for example, do it through a technology firm like Kickstarter to provide loans, and another Currency Cloud type to make the payment. The success of these participants is due in part to their ability to focus on a very specific niche in the sector, rather than trying to compete at all levels. Banks, on the other hand, have always tried to take ownership of all aspects of the range of financial services, and this is where they find themselves struggling, as alternative participants offer more sophisticated services to clients within a specific niche.

Hakenes & Schliephake (2019) noted that despite their differences, Both Fintech participants and banks have a lot to gain by participating together. Fintech entities can benefit from the long history of banking operations and the base that banks offer. They are a vital part of the puzzle, as banks provide the financial instruments that Fintech companies offer packaged in different ways, while focusing on one specific use at a time. Banks can simultaneously gain value in new entrants, already either seeking to partner, or acquiring their advanced technology offerings. Using API capabilities provided in this way can help banks expand their services internationally, lower their development costs, and discover new modes of revenue without having to invest and create new structures. Fintech growth and pressure to open up access to financial data has been warned by the entire sector as the government continues to support Fintech entities and the development of the United Kingdom as the most groundbreaking financial hub. Not surprisingly, plans have recently been announced to create a consolidated and open API approach for banks. The government has pledged to launch a call for data on the best way to provide an open standard for APIs in the British banking sector and to ask whether further openness of data in banking could benefit consumers.

Kim, Park & Song (2016) found that the beginning of this process has been to talk about the products offered by banks, the next step is to know what Fintech companies are really interested in: fully opening transaction data from within banks. However, banks continue to be very cautious before giving external participants access to this type of data, and it will take many conversations before such a gesture becomes reality. These may not have been the breakthroughs we were initially hoping for when we started hearing about the open standard, but at least it’s a very good start. We have already seen how taking care of the API economy can endow the sector with a good dose of innovation, and with greater support, it will undoubtedly continue to produce new opportunities for both banks and alternative participants who are coming. The faith that the British government is showing that these effective newcomers will take the sector forward and into the twenty-first century further demonstrates that the alternative participants have done a wonderful job of showing their value to the sector.

Mavrakana&Psillaki (2019) researched that considering Malaysia’s demographic structure-more than half are Muslims, Islamic finance (financial transactions by Islamic regulations) also occupies an essential position in the country, with the considerable growth potential of finance.

Junejo, Shah & Bachani (2019) noted that for the past two years, Malaysia has become the leader in the fintech market, placing itself as the gateway for Chinese technology titans to the global market. Private investments in Malaysia fintech companies got $562 million in 2018, more than twice the investment recorded in 2017 ($246.3 million) and five times more than in 2016 ($ 135.6 million).

Currently, there are about 570 financial technology startups in Malaysia, as well as test settings and numerous industry-focused accelerators. The development of this trade is mostly due to the group of private investors with a position that keenly supports fintech companies. For example, the Malaysian government has established a fund of 500 million Malaysia dollars (about 64 million US dollars) for the development of the financial amenities sector for the next five years. Also, Malaysian authorities actively promote the event of an ecosystem of Fintech companies through the Foundation for Innovation and Technology (ITF).


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Professionalism and ethics
Professionalism and ethics

Task 1 (a):

The main role of financial institutes is to act as an intermediary between the ones who have excess funds and the ones who require funds. Having effective financial markets is so important for the development and prosperity of any economy and country as it helps in the provision of funds to the business owners and industrialists which then utilize those funds in starting new ventures or expanding the already existed ones. On the other hand, weak and ineffective financial institutes and markets can result in stagnancy in the economy of the country, slower growth, and a rise in unemployment.

Why financial sector is more regulated than the other sectors?

  • A downfall in the financial sector can have a ripple effect:

In the financial sector, the extent of interconnectedness and dependence on each other is quite larger than in any other sector. The primary business of any bank is to lend the funds to its clients or customers who are in need of additional funds; and, sometimes banks even tend to borrow money from other banks in order to lend to other customers. Hence, the failure of one bank can be a negative aspect for the other bank. On the other hand, we don’t see this much of the interconnectedness in any other sector, the downfall of any manufacturing company might be a greater opportunity for other manufacturing firms but hardly a sign of risk.

The financial crisis of 2008 started from the declining housing prices in the United States of America but its impact could be easily witnessed in countries of Europe and Asia. (Philip Rawlings, Andromachi Georgosouli, Costanza Russo, 2014)

  • The case of social externality:

The social externality is the term used to define the phenomena when the doer of a wrong action might not be the one who would face the consequences of his doings. Stockholders of a power-generating company might not be directly affected by the pollution created by the burning of coal; hence their main priority would be to increase the electricity production so that their profitability would increase no matter how harmful it could be for the overall environment.

Such social externality also exists in financial markets. The bankers and the brokers who would sell bogus stocks for the sake of commissions might not be directly affected if the prices of those stocks start to fall down. (Glenn Hubbard, 2010)

In such scenarios, regulators feel a greater need for regulations that can limit the possibilities of unfair exploitation from social externalists.

  • Information asymmetry:

Asymmetric information occurs when one party involved in the transaction has more information than the other party. The professionals working in the financial sector definitely possess more knowledge and information than their customers and clients.

A common person doesn’t buy financial products very often in his life, unlike other products like utilities and clothes. Hence, it is difficult for the common person to know much about the actual quality and authenticity of financial products. (Frank A. Wolak, 2015)

The role of regulators is to lessen the levels of information asymmetry between the parties of transactions and make sure that financial institutes are not taking undue advantage of the simplicity of a common man.


Task 1 (b):

According to the London Institute of Banking and Finance, professionalism in banking provides the bridge between ethics and law. In the world of finance, professionalism means to act and behave legally and ethically all the time.

After the financial crisis of 2009, it could be found that some financial firms and banks had started to extricate themselves from their ethical and legal responsibilities; they started to focus more on short-term benefits rather than thinking for the betterment of their customers. The internal culture of such firms had begun to pursue policies which emphasized more on generating revenues and sales while focusing less on the safety and perseverance of the rights of their clients.

To achieve the professionalism in banking and financial services industry is to commit oneself to acquire relevant knowledge and to develop oneself in accordance with the requirements. Professionalism in banking also refers to establishing an internal culture that makes it hard to take decisions that are not aligned with the long-term prosperity of the client.(Martin Day, 2016)

Task 1 c:

According to the code of conduct of Chartered Banker Institute, the following are the few commitments a professional working in the banking industry should commit to:

  • A banker should treat all of his colleagues, counterparties, and customers with respect and ethics.
  • He should commit to the continuous personal development and maintenance of relevant skillset and act with care and diligence while providing any financial advice. He should understand his responsibility and hold complete accountability for his actions.
  • Banking professionals should comply with all the implied regulations and be cooperative with the regulators.
  • Always act in an honest and trustworthy manner. A banking professional should manage all the conflicts of interest,
  • Treat customers fairly and keep their interests on topmost priority.
  • Keep all the information provided by the clients confidential.

Task 2 (a)

Ethics is a process that governs and guides the way in which human beings interact with each other. They influence the process in which people make decisions and lead their lives. Ethics dictate what is good for individuals and is concerned with acting according to the right behavior, whereas law is concerned with what is right and what is wrong. Law and legal requirements differ from ethical ones in such a way that the law refers to a systematic body that is aimed at governing the whole society and the actions of each and every individual, whereas ethics refers to a branch of philosophy that is concerned with basic human conduct.

Violation of any law or legal requirement in any capacity will lead to punishment, either imprisonment, fine, and/or suspension. Laws represent a basic standard of human behavior, which is derived from ethics and morality. Hence, laws and regulations are concerned with ethics and morality. Both legal and ethical requirements provide bankers with guidelines as to how to act, what to do and what not to do in certain situations (Green, 1989).

Task 2(b)

Radical subjectivism theory claims that true reality is independent of perception. It states that perception and consciousness are real and that the nature of such reality is dependent on the perception or the consciousness of the individual. The theory of radical subjectivism claims that the nature or the existence of any and every object solely and entirely depends on the any person’s awareness and subjective perception of it (Lewin, 2011). One of the major objectives of the radical subjectivism theory is that subjectivism seems to claim that moral statements give information only regarding what or how we feel about moral issues. For instance, this theory states that if a person approves of something, then it must be good. Similarly, if one does not approve of something then it must surely be bad (O’Neill, n.d.)

Moral relativism theory claims that moral judgements are right or wrong only relative to a specific standpoint, which can be that of a culture or a historical era. The theory also states that no such standpoint can be proved objectively significant over another. For example, according to the theory of moral relativism, the statement that ‘slavery is unjust’ is true relative to the standpoint of the moral frameworks of the 21st century. The same statement of ‘slavery is unjust’ would however be false relative to the moral perspective of South America in the 18th century. The major objective of the moral relativism theory is that the theory is logically inconsistent in such a way that the right and wrong are only relative terms. The arguments against this theory that it can only be right or wrong relative to a particular culture or an era (Harman, 1975).

Virtue theory claims that ethics and morality are person based rather than action based. The theory looks at the moral character of the person conducting any action, rather than at the ethical and moral duties and responsibilities of the person or the consequences of any actions that the person carries out. The virtue theory centres the ethical and moral principles on the person carrying out any action. One of the main objections against virtue theory is that the theory does not provide any guidance on what to do or how to act in situations that present a person with a moral or ethical dilemma. The theory just goes on to assume that a ethical person would know how to act and what to do in any such situation and we would consider such a person as a role model(Veatch, 1985).

Task 2 (d)

In a competitive workforce environment, certain situations can arise where a fellow employee may start to act in a way that is considered morally and ethically questionable in regards to the moral framework of the society. One such instance of an ethically questionable behavior can arise when one employee takes credit for the work of another employee. The best way to deal with such a person and to challenge such unethical conduct is by the use of ethical reasoning. Ethical reasoning states that people act and behave in a way that either enhances the quality of life and work of others or their behavior and conducts decreases the quality of life for other. It claims that the actions of the people can either be helpful or harmful and that people know the difference between helping and harming. Using ethical reasoning, the morally questionable behavior of an individual who takes credit for the work of others can be challenged by highlighting the act of the person. Highlighting the act or conduct that harms another person is worthy of criticism. For many people, such a response from others can serve as a guiding principle for their actions.


Task 3 (a):

During the financial crisis of 2009, thousands of people lost their life savings, dozens of countries faced recessions and few of the largest financial institutions of the world got bankrupted. Such incidents force people and institutes debate over the issue of “to what extent the financial institutes should be regulated.”

Regulations for banking sector and their history?

After the crash of stock market in 1929 and the nationwide commercial bank failure during the great depression, the Glass–Steagall Act came into existence which basically started the era of regulations for the financial institutions, especially banks. Glass-Steagall Act of 1933 stopped banks from participating in the activities of investment banking and also put a ban on investing depositors’’ money in risky equities. At that time commercial banks were highly involved in investing in stock market which is considered as one of the main reasons for the crash of 1929. The main purpose of the Glass-Steagall act was to stop banks from taking excessive risk on depositors’ money.

But later on in 1999, Gramm-Leach-Bliley Act repealed the Glass-Steagall Act and again provided extra freedom to banks. Many economists claim that repealing of the Glass-Steagall Act was one of the main culprits behind the financial crisis of 2009.

Main differences between two acts:

The agenda of Glass-Steagall act was to stop banks from participating in other activities like investing, insurance and focus mainly on providing banking services. However, later on Gramm-Leach Bliley Act again allowed banks to participate in other activities. GLBA also allowed banks to invest in equity markets.

Task 3 (b):

Deregulation in any industry or sector means that the government removes or reduces strictness and barriers which make it easier for the companies to operate. Deregulation or to which extent the government should deregulate financial sector has always been a matter of debate as it involves greater challenges and risks. Financial markets doesn’t operate like any other goods or services market; there are several fundamental differences between the two. In a common goods market, the business owners tries to develop assets which can help people in doing tasks more effectively and hence, increase the future cash flows. However, in financial markets, people tries to make profit through the information related to the current existing assets. In ordinary goods or services markets, discovery of prices is based on information received from several of independent players who are acting for their own personal wellbeing, and chances for profit making arise from individuals’ circumstances based on the confidential, situational information of the market players. On the other hand, in financial markets, like equities, bonds, currencies and derivatives, discovery of price is usually dependent on information provided by very few events, or even on models based on mathematics that purely relies on historical data.

One of the key flaws in the working of financial instruments and markets is that the prices and profitability often get derived by the herd behavior. Because of this if an individual goes against the majority, even if he has followed logical assumption and acted on fundamentals, he might face huge losses. This characteristic of financial market sometimes creates bubble in the prices of assets which is promoted by speculations and may end in disasters like what happened in 2008 in the form of fall in the housing prices.

Following are few of the pros and cons of the deregulating financial institutes like banks.


  • It can decrease the barriers of entry.

Having stiff regulations in the financial sector can stop small players from entering the market which can hinder innovation. Deregulating the banking industry, can make it easier for startups to enter the industry, improve the overall service quality and give more choices to the customers. The most recent example of this is the inception of the concept of “Open Banking” in Europe. Open banking basically allows new comers like startups to use the data base of well-established banks in order to create and promote innovative payment solutions.

  • A step towards the creation of free markets:

Free market is the concept where market forces like supply and demand set the prices of goods and services. When a greater force like regulatory body or government interfere in the operations of financial institutions, a financial instrument like bond or currency, can never trade on its actual market price, which economists believe is harmful for the overall economy and growth in the longer run.

  • Deregulations can decrease the cost of borrowing money:

Deregulation can improve corporate efficiency as it can lower the cost of borrowing money. Having tough regulations will allow only few big players to complete in the industry which can result in oligopoly like situation, resulting in higher costs for using their products. Deregulating the banking system, may allow new players in the market which will increase competitions and hence, lower costs.


Following are the few cons of deregulating the financial institutes:

  • Speculations will increase:

With its benefits, deregulation also brings issues like creation of asset bubbles. With no or lesser regulations, participants in financial markets will be free to speculate which can result in the creation of asset bubbles and bursts. This is exactly what happened in the financial crises of 2009. Market participants like banks were free to grant loan to whomever they want even without a proper scrutiny, which resulted in a huge portfolio of subprime mortgages.

  • Financial institute might exploit common men:

Asymmetric information occurs when one party involved in the transaction has more information than the other party. The professionals working in the financial sector definitely possess more knowledge and information than their customers and clients.

A common person doesn’t buy financial products very often in his life, unlike other products like utilities and clothes. Hence, it is difficult for the common person to know much about the actual quality and authenticity of financial products. The role of regulators is to lessen the levels of information asymmetry between the parties of transaction and make sure that financial institutes are not taking undue advantage of the simplicity of a common man.

  • Lack of attention towards social concerns:

Without proper regulations, financial institutes may ignore the damage provided by them to the social issues or concerns as they might not be the one who would face the consequences of their doings. Social externality exists in financial markets. The bankers and the brokers who would sell bogus stocks for the sake of commissions might not be directly affected if the prices of those stocks start to fall down. In such scenarios, regulators feel a greater need of regulations which can limit the possibilities of unfair exploitation from the social externalists.

Task 4(a)

Ethical dilemmas are very hard to solve. Usually there is no universal answer or solution to ethical questions and dilemmas which people or corporations face in their daily lives. There were many philosophers which provided different theories of ethics but in reality they may conflict which each other and couldn’t help us in finding the right answer and solution for our ethical dilemmas. However, Milton Friedman tried to solve this issue by publishing an article in New York’s Time by a title, “The social responsibility of a corporation is to increase its profits”. In this article Friedman tried to give a direction to corporations for solving their ethical dilemmas and providing them a way of doing business accurately.

According to Friedman, the only social responsibility of a corporation is to increase its profits while doing all the right things and playing by the rule, which means by not doing any fraud or deception. Another part of Friedman’s argument is that corporations shouldn’t be engaged in activities related to “corporate social responsibility” as by spending shareholders’ money on such activities which can’t be beneficial directly in increasing the corporate’s profits, is against the principle of free economy and capitalism. Money which is spent on social responsibility programs by companies are of shareholder which should be given to them in the form of dividends and the directors or managers are the employees of those shareholders and the sole job is to work in order to increase the profitability of the company not to spend on social issues in form of corporate social responsibility. (Milton Friedman, 1970)

This idea can raise the question that whether managers or directors can literally do anything to increase the profits of their organizations? Even if playing by the rules, there might be many shady or wrong things which can be put in the box of unethical activities, so what about that? If by doing these activities, profits of the organization is increasing, should directors do that?

In his article, Friedman further clarifies that directors and managers can’t do anything to increase the profits of the organization but only those which are allowed by the government and are legal in case of law. In Friedman’s viewpoint, a company should engage in an activity not because it is good for the society but because it is financially and economically feasible and viable. (Craig P. Dunn and Brian K. Burton, 2006)

In opposition to the thoughts and viewpoints of Friedman, many scholars and specialists have tried to prove that being engaged in ethical and social responsible activities are crucial and beneficial for the company, even in financial and economical term. When a company acts socially responsible, it gives a message that it really cares about its customers and this is a great marketing tactic which in the end results in increasing profits. (Ian Watson and Peter Prevos, 2009)

Task 4(b)

The most relevant example to prove that being engaged in corporate social responsibility (CSR) activities can be beneficial to the company, financially and operationally, is of Starbucks. Starbucks is most famously known for selling coffee. It has 22,000 stores in more than 60 countries to date. Starbucks’s CEO, Howard Schultz, is a firm believer that giving back to the society is the ultimate way of doing business. (Sornchai Harnrungchalotorn, n.d.)

In 2010, Starbuck was doing poorly financially. The main reasons were the financial crisis and internal restructuring. In this current time, Howard Schultz decided to innovate Starbuck’s CSR strategy and invests in its people, communities and environment. Starbucks currently have several CSR initiatives like ethical sourcing, community services and sustainable environment.

In ethical sourcing, Starbucks helps the farmers from which it buys coffee beans, cocoa and other stuffs through educating them and providing them free of cost seeds and coffee plants. Through community services Starbucks donate to local NGOs, train young people and pay for education. To decrease its carbon emission and negative environmental impacts, Starbucks is going towards eco-friendly LEED certified stores, recycling and using electricity which is produced through green sources. (Sanne Bruhn-Hansen, 2012)

 In order to understand the impact of all of these socially ethical activities on the profitability and financially viability of Starbucks, we need to see how such activities have helped Starbucks. Educating the farmers regarding the efficient ways of growing coffee beans and providing them free seeds have built the trust between the Starbucks and the community of farmers which resulted in a better quality of coffee beans and adequate supply without any hassle. Investing in its people through training and education, Starbucks has lowered its turnover rate, increased the efficiency level and made its employees loyal. Protecting environment has played a key role in portraying a soft corporate image of Starbucks and a great marketing tactic which resulted in buying the trust of its customers; hence, increment in profitability. (Hussam Al Halbusia*& Shehnaz Tehseenb , 2017)

Milton Friedman needs to understand the long term impact of CSR activities and stop measuring the expenses of CSR in isolation. When a company engages itself in socially ethical activities, it sends a message to the world and its customers that it really cares not only about its profits but also of its customers, its people and the environment where it operates which in the end results in increment in the overall profit.

Task 4©

Stakeholder theory is another theory given by Edward Freeman which tries to explain why corporations should be engaged in moral and ethical activities. Instead of beginning a business and then seeing what an organization can do to help the communities and environment, stakeholder theory starts from the world in itself. It starts from listing all the relevant stakeholders which are and will be impacted by the operations or business of the corporation. The organizations in stakeholder theory asks questions like who will be impacted by our business. What kind of impact we will be making to our neighboring communities? Is our business harmful to the environment?  In short, all those people, communities or environment which would be impacted by the operations of the company are the stakeholders of those business just like company’s debtors or shareholders. All of these stakeholders have a claim of the company and the company should be considerate of them. (Jeffrey S. Harrison, 2015)

As an example, when a manufacturing unit starts production and emits carbon particles which results in pollution in the neighboring towns, all the people residing in those areas are the relevant stakeholder in that company and have a valid right to question such emissions. Hence, these people must share their opinions and contribute to decisions made at a corporate level.

This theory differs from the previous theory that companies should engage in CSR activities as they make it more profit by doing such things. This theory claims that the company has a moral obligation to serve the stakeholder who are directly or indirectly affected by the operations of the company. (MridulaGoel and Dr. Reeti E.Ramanathanb, 2014)

In my opinion, this theory is more accurate than the theory of Friedman as through this companies are obliged to serve its surrounding entities not for the sake of increasing profits but because they have to. If all companies follow this theory and make themselves obliged, many issues in the society such as environmental pollution, misusage of labor, unethical and wrong doings will be stopped. However, fully fledged implementation of this theory is not possible as there are still loopholes in the law through which organizations are not obliged to answers all the stakeholders except the ones who have direct legal claim on them like shareholders. (Ahmadi Alia, 2016)

Task 5:

Task 6(a):

Larry Fink, the CEO of BlackRock, publically stated in January 2018 that now the companies have the obligation to make profit and deliver back to the society in any way and if the company fail to do the later, it may face serious consequences as now the customers are aware of the worldly issues and will not prefer to buy products or consume services from a provider who emit carbon particles, is not focusing on recycling and green energy production. This statement from the CEO of a fund which manages $6 trillion globally is now a normal standard.

Financial success for companies is now correlated with their performance in environmental, social and governance sector (ESG). The abundance of sustainability indices from Dow Jones to Bovespa marks the point that now organizations’ performance is analyzed across financial and non-financial indicators like social and environmental. The “sustainability premium” of organizations shows which companies can manage risk better or make better usage of new opportunities.

The relevance of such issues are directly linked to the financial sector as banks lend money to organizations which might not be performing well on ESG platforms which portrays that these organizations might face tough times in future in terms of not managing the risk in an efficient way or taking full use of new opportunities. (Allen N. Berger, 2003)

Financial institutions which lend money to high risk sectors like oil and gas exploration, electricity generation, coal miners etc, face two kinds of risks, credit and reputational. Lending funds to such sectors or companies which are contributing directly to the world’s pollution or are not taking labor laws and ethics seriously, can create issues like late repayments or even defaults in severe cases. (Michel Dietsch, 1996)

For the financial industry, credit risk, reputational risk, and an intention to help defining the solutions created the road for the establishment of the Equator Principles (EPs) in 2003. 92 investment banks which specialize in project financing have adopted the EP as of now, representing 72% of the global project financing banks. With management from financial institutions including commercial and investment banks, development banks, non- profit organizations, governments and civil society organizations, the financial institutes are developing standards, policies and handy tools that are helping environmental and social friendly strategies converting into corporate strategies for financial institutes like investment banks, asset management firms, funds to better assess risks and build client strategy and capacity along the way.( Colin McKee and Luiz Gabriel Azevedo, 2018)

Task 6(b):

Financial institutes, especially banks, are the building blocks for any community or society as they act like a bridge between the lenders and borrowers. Banks help the economy to grow, unemployment to reduce and the overall society to prosper. Since ages banks have been providing funds to sectors like oil and gas, electricity generations, coal miners, which are now considered non-environment friendly as they emit carbon particles into the environment which results in pollution. With increasing awareness regarding climate change and global warming, these sectors which have been harming the environment are facing tough time from non-profit organizations, governments and civil societies, even customers on individual basis have started to boycott products or services from companies which are not taking precautionary measure to combat environmental issues and reduce their carbon emission.

Financial institutes are facing the heat too as they have been indulged in funding some of the major coal powers plants or other infrastructure projects which have been harming the environment. Now the dilemma for banks is what to do next, should they continue funding these firms or organizations or adapt another corporate strategy. Do banks face any moral obligation to align themselves with global ESG goals? (Simon Dikau and Ulrich Volz, 2018)

After doing some thorough research and studying few relevant theories regarding ethics and morality, I have come to the conclusion that yes, banks should be obliged to align their funding strategies to a more environmental and social friendly goals. If banks continue to do what they have been doing since ages, they may face severe consequences like loss of clients who are environmental friendly, issues like late repayments and defaults of clients which are taking relevant precautions to combat carbon emissions. (Virginia Zhelyazkova, Yakim Kitanov , 2015)

If banks don’t adapt a more ESG friendly corporate strategy and keep funding projects or companies which are providing harm to this environment and society, they might not be able to find clients in future. (Simon Cooper, 2019)





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